Eminent Domain Report

Despite undertaking due diligence, a buyer of real estate may miss pre-existing property damage or a public improvement that was installed without permission or right.  Does the new buyer have a cause of action for a taking – or inverse condemnation – for such pre-existing conditions?  The answer is most likely no, as purchasing property does not include the transfer of a takings claim, which remains with the owner of the property absent a clear intent to assign the claim.  A recent case in Los Angeles Superior Court, Ncp Imperial v. State of California (2022 Cal. Super. LEXIS 60513), highlights how this situation may arise, and why the buyer has no recourse against the public agency.

Background

In NCP Imperial, the plaintiffs purchased property in Norwalk, California, with the intent to redevelop the site.  Before purchasing the property, they conducted a review of the property’s title, including any encumbrances reported, and also secured an ALTA survey.  Later, they discovered an unrecorded and undocumented 78” subterranean reinforced concrete sewer pipeline that was actively being used by a public agency for storm water and flood control purposes.  Upon discovery, the plaintiffs notified the public agency to stop using the property for the pipeline, as it interfered with the development potential.   The public agency conceded the pipeline constituted a public improvement, and there was no easement or other right to occupy the property, but it could not relocate the public project. 

Plaintiffs filed a lawsuit for inverse condemnation for the physical taking and damaging of private property, and the public agency filed a demurrer, asserting that plaintiff lacked standing to pursue the claim. 

Transfer of Property Does Not Include Assignment of Inverse Condemnation Cause of Action

The trial court walked through the requisite factors for proving inverse condemnation: 

1. Plaintiff owned the real property;
2. The property was taken or damaged; and
3. The cause was a public project.  

The court then explained that for purposes of standing, the cause of action accrues when the agency’s act causes immediate and permanent injury to the property, and the claim belongs to owner of the property at the time of the taking or damaging, regardless of whether the property is subsequently transferred to another party.  The inverse condemnation claim is not transferred to a buyer unless there was a “clear manifestation” of the transfer.

In this case, the court held that the new owners (the buyers) did not have standing because they did not suffer injury as successors-in-interest; they acquired the property after the pipeline was installed (i.e., after the taking or damage occurred).  As a result, the demurrer was granted in favor of the public agency, and the buyers’ lawsuit was dismissed.

Take-Aways

When buying property, conducting due diligence is crucial; moreover, to the extent there is a potential cause of action for inverse condemnation, the buyer should make abundantly clear that the transfer of the property includes an assignment of all rights, including any takings claims.  While the buyer is out of luck against the public agency, the buyer may potentially be able to pursue claims against the seller or the title insurer, although those claims may also be time-barred or have other barriers to recovery.